Microinvesting: An Antidote to U.S. Foreign Aid

I don’t know about you, but I feel my money should be working as hard as I do. Right now it’s not. I converted my investments into cash back in early 2008 when I saw the financial crisis coming. It’s pretty much just sat there since then.

Microinvesting, the practice of supporting the businesses of small entrepreneurs in other countries, sure seems a lot more inviting than investing in anything in the U.S. securities markets these days.
An economist promoting this idea is Dambisa Moyo from Zambia. She’s ruffling white male feathers in Europe and America by suggesting that foreign aid to Africa and other less-developed areas of the world is hindering rather than helping things.

This isn’t a new idea. I proposed it in 1973. But unlike Moyo, I didn’t have a PhD in economics from Oxford and an MBA in Finance from Harvard along with a decade of experience at the World Bank and Goldman Sachs. My 1973 article, “Ethiopia: Trapped by Foreign Aid” in The Nation was merely based on research for my masters thesis awarded at the University of Wisconsin-Madison. It’s at http://sn.im/ethiopia

My article was a “case study” that supports the theory of Dr. Moyo’s new book, Dead Aid, that aid from foreign governments and the World Bank isn’t helping Africa. It’s at http://sn.im/kqqjp

According to the The Financial Times and others, critics of Dr. Moyo use words like “unscientific,” “reckless,” and “naïve.” Critics say she has no proof foreign aid is not working. But where is the critics’s “proof” that “the hundreds of billions of dollars poured into Africa over decades” by governments of developed countries and the World Bank actually could cause any overall decrease in poverty?

My research indicated the main beneficiaries of aid to Ethiopia were the U.S. military and multi-national corporations. The corporations benefited by displacing masses of indigenous communal farmers so that they could grow and mechanically process coffee on large plantations. As a result, we got something new to drink. The children in Ethiopia got nothing.

The real issue, in my opinion, is the purpose, not the amount of foreign aid.

Foreign aid, by ignoring the needs of the people who live there, also appears to promote dictatorial governments and bloodshed in Africa. As long as economic diversity, self-reliance, and competitiveness in developing nations are stifled by foreign aid, there will not be a reduction of poverty abroad; only a massive wealth transfer via cheap exports and interest payments back to developed countries.

No amount of charity can offset that loss. Microinvesting, as a bottom-up solution may be a drop in the bucket in comparison with foreign aid, but at least the benefits to all parties are equal.

Since the 1970s microlending institutions have sprung up all over the less-developed areas of the world. As little as $25 can be invested through a financial institution in another country to help solo proprietors get on their feet with an idea for a product or service. In return you receive interest on the loans you make to foreign entrepreneurs in support of their dreams.

Some microfinance programs offer support to entrepreneurs by requiring them to sign up for regular meetings with groups of other entrepreneurs in their local geographic area. They all act as mentors for each other as they grow their businesses.

(1) Kiva.org is a well-known group endorsed by Dr. Moyo.
(2) MYC4 at myc4.com is another group established in Africa.

Recently PBS had a special on microcredit projects in India and other countries. Organizational names I pulled from that show include: